OP TIMAL FINANCE

Organization Low difficulty

Public sector Interviewer-led case

Optimal Finance discusses increasing the efficiency of the finance function within a Government
department.

The case covers all dimensions of the case interview scorecard equally.

Problem definition

You have been asked to support the finance function within a Government department. The function is
responsible for all financial activities and information for the department, including budgeting, controlling
spending, and reporting to the Centre of Government. The Government funds the department, so the
purpose of the finance function is to simply manage and monitor spending.

The CFO has called you in because of a recent cut to his budget. He tells you the finance function needs
to reduce in size and become more efficient.

The CFO is looking to reduce the finance workforce cost by £2.5M and has asked you to help
identify where these cuts could be made, without affecting the output of the function.

Additional information
If asked, please share that:
• The current workforce bill is £9.3M per year for the function, therefore the desired saving is 27% of
total cost
• The work and output of the finance function will not change
• Redundancy costs are not applicable; employees will move out of jobs through natural attrition or via
jobs offered in other Government departments

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Question 1 (Structuring)

How would you structure your approach to the question?

Possible answer

1. What is the current staff structure and activity?

a. What is the current staff structure?
• How many members of staff are there?
• How many at each grade/salary?
• What skills and capabilities do they have?
b. What activities do staff do?
• What processes do staff perform?
• How is their time spent?

2. What areas of improvement exist and what’s the size of the opportunity?
a. Is there rework? How much and where?
b. Is there duplication? How much and where?
c. When is time wasted? How much?
d. Is technology used inefficiently? Size of impact if technology was improved?
e. How do current processes compare to best practice?

3. How can changes be implemented?

a. What needs to change first?
b. When must the changes be implemented by?
c. What’s the best way to communicate changes?

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Question 2 (Judgement and insights)

The function recently conducted a survey of its 280 employees and discovered the following information.
(Share Exhibits 1 & 2)

What useful insights can you draw from this data?

Possible answer

Possible key insights with “so, what’s?” include:

• 80% of staff time is spent on two very manual processes – increasing efficiency within these two
processes would have the largest impact
• Over half of staff are highly qualified accountants, yet 80% of work is very manual and therefore
likely below their skill and pay grade – removing manual workload would mean these qualified
people have more time for work they are trained for, resulting in a more effective use of staff skills
• The in-year accounting process involves two IT systems – this could be duplication of work and
therefore potential to remove inefficiency
• Most staff are in the bottom two pay grades - we could assume due to a lower rate of qualified
accountants in these grades that these employees are doing manual work. This may signal an
opportunity for reducing workforce within these grades if processes can be made more efficient.

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Exhibit 1: Staff time by financial process

Staff time
Process (% of total) Definition of process Nature of process
Estimation of future spend
Annual A repetitive and manual
45 based on previous years'
budgeting process
budget
In-Year Recording of expenditure Manual input of data into
35
accounting compared to budget two systems
Detailed forecast of
Semi-manual; requires
Forecasting 12 expenditure, involving risk
trained expertise
calculations
Fully manual process;
Investment Writing and signing off of ad-
4 requires investment finance
cases hoc investments
expertise
Basic management and paying
Bills payment 2 Manual process
of regular bills

Other 2 Undefined n/a

Total staff
100
time

Exhibit 2: Staff by pay grade and accounting qualification

Number of Average annual Qualified accountants

Pay grade staff salary (%)

A 4 £100,000 75

B 20 £70,000 80

C 64 £45,000 72

D 80 £30,000 60

E 112 £20,000 40

Total 280

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Question 3 (Creativity)

Exhibit 1 shows that the Annual Budgeting process requires the most amount of employee time
compared to other processes.

Your team member looks into this process to understand why. They discover there is a high amount of
re-work due to inaccurate or late submissions from teams to the finance function. Based on interviews,
you learn this is because non-finance staff do not consider financial matters to be a priority.

What ideas do you have for increasing the level of employee engagement with regards to
financial matters within the Department?

Possible answer

Monitor and incentivise

• Track % of correct and on time submissions from teams
• Implement incentives for on-time submission e.g., prioritise their submission
• Start a “team of the month” award to celebrate teams who complete submissions on time

Penalise
• Implement penalties for late submissions e.g., charge a resubmission fee, deprioritise submissions
from poor performing teams
• Enforce trainings on teams who submit late or inaccurate information

Educate
• Share best practice for financial management
• Use top performers as role models / trainers to educate others
• Run a “finance month” with lunch trainings, newsletters, quizzes etc.
• CFO to share vision to “become most financially-savvy department”

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Question 4 (Numeracy)

Your team discovers two important facts:

1. Reducing re-work across all financial processes removes 40% of employee time at the C and D grade
2. Removing the second IT system to remove duplication of work would reduce employee time by 30% at
the E grade level

The ratio of C grade staff to the total of D and E grade staff is 1:3 and this must be maintained.

Using the data from exhibit 1, if these changes were made, what would be the value of the
reduction in annual salaries?

Possible answer
Rework calculation:
40% of 64 C-grade staff = 25.6 = 26
40% of 80 D-grade staff = 32
80 – 32 = 48 remaining D-grade staff

Duplication calculation:
30% of 112 E-grade staff = 33.6 = 34.
112 – 34 = 78 remaining E-grade staff

C grade staff calculation:

64 – 26 = 38 remaining C-grade staff
48 + 78 = 126 D&E grade staff
1:3 ratio would require 42 C-grade staff for 126 D&E grade staff. Therefore, 4 C-grade positions must be
added back in, leading to a reduction of 22 instead of 26 assumed previously.

Cost saving:
C grade: 22 x 45,000 = 990,000
D grade: 32 x 30,000 = 960,000
E grade: 34 x 20,000 = 680,000
Total saving: 2,630,000

If these changes are made, the estimated saving would be just over the CFO’s target of £2.5M.
However, to be sure this is possible, I would next want to look further into how long it will take to remove
re-work and whether the second system has another use that is not necessarily financial, but still
important to the Department.

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Question 5 (Synthesis)

What recommendation would you put forward to the CFO?

Possible answer

The CFO has asked us to find workforce savings potential of £2.5M.

We have identified two methods of achieving this saving:

1. Remove the second IT system to remove duplication of work at the E-grade level, resulting in
a reduction of 34 E-grade staff
2. Reduce re-work caused by late and inaccurate submissions. This would be possible by implementing
incentives or penalties, and would result in 54 fewer employees at C and D grade.

These changes would allow a reduction of 88 staff, totaling £2.6M in salary costs.

However, if we had more time, I would look further into the high number of over-qualified staff and the
potential for savings there. I would also want to check the cost and time required to re-locate employees,
to ensure the net effect is still in line with the CFO’s goal.

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